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1. Summary |
Location
Your choice of a location can make or break your business, so put careful thought and analysis into your needs. This is not a decision to be made quickly or lightly.
First of all, consider your type of business. Do you require heavy traffic (either foot or car) or will people come to you? For some businesses, such as retail stores, location is critical. Others--manufacturers, some services, wholesalers, etc.--do not rely heavily on customers at the door so location can be less of a factor. You may even be able to find a local small business incubator or operate out of your home.
Consider the following factors as they apply to your unique business needs when choosing a location:
- Specific needs of your business--space, special installations, etc.
- Zoning requirements (check with your local planning office)
- Appearance of the area; safety
- Customer base of the area; population density and type
- Traffic patterns, accessability, and parking
- Nature of the competition
- Cost
- Lease terms
- Assistance--merchants associations, landlord, etc.
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2. Market Analysis |
Know your market!
A crucial element of business success is "knowing your market." It is important to clearly define your target group(s) by characteristics such as age, gender, economic status, lifestyle, geography, and other parameters. This will help in choosing the most effective marketing strategy for your purposes.
Furthermore, marketing research can help you assess competition and understand your industry. This knowledge is vital as you make decisions and forcasts for the future.
Information can come from existing sources (secondary research) or you may have to gather it yourself (primary research). Most businesses need both to effectively develop a marketing strategy.
Doing research can cost time and money so work it into your budget. This is one of the keys to a successful business.
Primary Research
You need to know where your customers live, how they learned about your business, whether they are satisfied with the product selection, prices, store appearance, etc. The best way to answer these questions is to ask. Surveying is one way to stay in touch with your customers.
You also need to know the strengths and weaknesses of the competition. This information can be obtained by shopping in and observing their businesses directly, buying and evaluating their products or services, and asking customers their impressions.
Secondary Research
There are many resources available to provide demographic and geographic characteristics of your customers or trends in your industry. You can find this information at the library or on the Internet. There are market research professionals who will do the work or you can do it yourself.
Publicly held companies are required by law to file reports with the Securities and Exchange Commission. Articles are often available in the media. Credit reports are available from some private companies.
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6. Financial Data |
Balance Sheets
A balance sheet shows the worth of the business. Traditionally, the business' assets are shown on the left side of the page and liabilities and net worth on the right.
Assets = Liabilities + Net Worth
There are two main categories of assets: current assets (anything that can be converted to cash within a year) and fixed assets (buildings, equipment, etc.). Liabilities are divided into current liabilities (short-term bills such as inventory, salaries, etc.) and long-term debt (such as mortgage, etc.).
The difference between the assets and liabilities equals net worth.
Profit and Loss Statements
Follow the money coming in and going out over time in your business with a Profit & Loss Statement. Blank spreadsheets are available from local agencies such as the Small Business Development Center or SCORE, or check accounting books at the library or any business stationary store. Your spreadsheet should have a column for each month and keep track of at least the following information:
- Total Sales
- Cost of Sales
- Gross Profit
- Owner's Wages/Draw
- Salaries
- Payroll Taxes
- Supplies
- Advertising
- Auto/Travel
- Dues & Subscriptions
- Postage
- Legal & Accounting
- Office Supplies
- Telephone
- Utilities
- Depreciation
- Interest
- Insurance
- Rent
- Taxes & Licenses
- Loan Payments
- Net Profit/Loss
Cash Flow Projections
Cash flow projections tell you where your money is going and if you are likely to have sufficient money each month to operate the business. Buy or create a spreadsheet with a column for each month. (Blank spreadsheets are available from local agencies such as the Small Business Development Center or SCORE, or check accounting books at the library or any business stationary store.) Fill in the following information:
CASH IN
Cash Sales
Paid Receivables
Interest
CASH OUT
Rent
Payroll
Taxes
Inventory
Utilities
Office Supplies
Loan Repayment
Miscellaneous
ENDING BALANCE (Starting Cash + Cash In - Cash Out)
Ratios
Financial statements help you track and analyze financial information. Ratios are then often used for decisionmaking. Some common ratios include:
- Liquidity ratios. These measure the amount of cash available to cover expenses.
- Profitability ratios. These ratios measure profit margin, return on assets, return on investment and return on sales to help control income.
- Efficiency ratios. These help you keep track of inventory turnover return on assets, and credit sales. They measure how well you are conducting your business.
Even when you understand how they work, financial statements and ratios can be complex. You may still want to consult a professional for help in setting up, interpreting, and making decisions from financial statements.
